Bollinger bands are one of the most used economic indicators for lovers of those traders for technical analysis, here in Capitalista.co explain how to use Bollinger bands. Seeks to provide signals when a market is in a period of low volatility and also represent values overbought and oversold, the trader must never interpret signals when the market touch any of the bands this could lead to false entries reducing capital investor in most of the cases.
Bollinger Bands also allow assimilate if the price is in areas of support or resistance.
The graphical interpretation of the bands are given combining the indicator with a simple moving average (follow the link to know which are the moving averages), which may typically have a value of 21 sessions to a standard deviation of k = 2 for the bands . Normally an indicator depends on the other however, is no longer recommended values suggested here ie the trader can “play” with the desired values depending on the value he represents him in his favorite quote.
It is clear that the indicator is not a trend follower, so you can in a clear trend represent values overbought or oversold indicator is useful when represent sudden changes in the share price and thus capitalize on short movements, this Therefore, if the price is in the upper or lower band very close to the bands, following the interpretation given by John Bollinger, the pair is in overbought or oversold respectively. When the price is in a strong trend, the bands tend to separate between them assuming the overvaluation, however, if the price of that quote is in lateral movements and low volatility bands tend to constrict between them and at this point it is when you have to be very aware of the contribution. According to John Bollinger, when bands narrow and low volatility occurs usually predict sudden movements that generate the trader few pips in your favor, on the other hand, if a trend formation is observed the price is change bands, ie , the price can finally find an upward movement if the price is at the lower band and can also find a bearish movement if the price is in the upper band.